Wednesday, February 29, 2012

ART CASHIN: The Unemployed Are Now Going On Disability And It's Costing The Government Billions - (www.businessinsider.com) In this morning's Cashin's Comments, Art Cashin points to some disturbing research regarding the recent bump in disability benefit applications: I’m Sick Of Being Unemployed - A couple of strange and rather disquieting reports circulated among the Friends of Fermentation yesterday. The topic was unemployment or, more specifically, where do those people go who have stopped looking for work. Their absence is credited with distorting the unemployment rate and making it lower than most expect or believe. The reports I allude to, contended that many went on disability. In fact, they projected that nearly 25% of those not actively seeking a job had applied for, and been accepted, by disability - mostly Social Security. One of the reports came from a site called SoberLook.com (a perfectly logical place for the Friends of Fermentation to be browsing). The Sober report quoted extensively from a report by JPMorgan. I was unable to locate the original JPM report but we’ll assume that Sober quoted from it correctly. Anyway, here’s a bit from SoberLook:

Moody’s Downgrades Europe Sovereigns - (www.bloomberg.com) Moody’s Investors Service cut the debt ratings of six European countries including Italy, Spain and Portugal and revised its outlook on the U.K.’s and France’s top Aaa ratings to “negative,” citing Europe’s debt crisis. Spain was downgraded to A3 from A1 with a negative outlook, Italy was downgraded to A3 from A2 with a negative outlook and Portugal was downgraded to Ba3 from Ba2 with a negative outlook, Moody’s said. It also reduced the ratings of Slovakia, Slovenia and Malta. “The uncertainty over the euro area’s prospects for institutional reform of its fiscal and economic framework” and the resources that will be made available to deal with the crisis, are among the main drivers of Moody’s action, the ratings company said.

Volcker Rule Draws Barrage of Lobbying From Banks After Details Released - (www.bloomberg.com) The world’s largest banks demanded a wish list of changes to a proposed U.S. ban on proprietary trading, seeking to escalate the lobbying effort against the Volcker rule five months before it takes effect. In scores of comment letters filed yesterday, bankers and their trade associations said the so-called Volcker rule would increase risk, raise investor costs, hurt U.S. competitiveness and be vulnerable to legal challenge. “The proposal, if implemented in its current form, will overly restrain our customer-facing market-making business and our risk-mitigating hedging activities to the detriment of our customers,” Colm Kelleher, co-president of Morgan Stanley (MS)’s institutional securities group, and Jim Rosenthal, the firm’s chief operating officer, wrote in a letter posted to the Commodity Futures Trading Commission’s website. “Moreover, we believe that the proposal, if implemented as is, would have severe negative consequence for the markets and the U.S. financial system.”

Obama budget would double bank tax size - (www.washingtonpost.com) President Obama's budget plan calls for a bank tax twice as big as the one he proposed last year, a further sign he wants to make anti-Wall Street sentiment a major part of his re-election campaign. The bank tax, also known as the "Financial Crisis Responsibility Fee," first appeared in Obama's 2011 budget and was projected to raise $90 billion over 10 years. A year later, in the wake of the mid-term elections and accusations from executives that Obama was "anti-business," the White House cut the proposal by two-thirds to just $30 billion.

MEGAN McARDLE: Here's Why The GM Turnaround Is Failing – (www.businessinsider.com) This despite the fact that the company’s major Japanese competitors had been crippled by a tsunami and a nuclear meltdown. Business journalists often joke that some struggling firm could be saved only by “an act of God,” but in the case of GM’s stock price, even that hasn’t been enough. Which has to raise the question: Was the company really saved? Did it finally have its “Come to Jesus” moment? Or was this just one more temporary detour in the company’s erratic amble toward perdition? Historical precedent offers strong reasons to worry that GM might continue to backslide. Though casual glosses usually present the company’s history as a steady decline from the mighty 1960s to the debacle of 2008, in fact, there were quite a few moments when GM—and Detroit more generally—­appeared to have mended its ways. In 1994, during one of those moments, the reporter Paul Ingrassia published a book calledComeback: The Fall and Rise of the American Automobile Industry. In his 2010 book, Crash Course, he sounds older and wiser:

Tuesday, February 28, 2012

Fed Plays Wall Street Favorites in Secret Deals - (www.bloomberg.com) The Federal Reserve secretly selected a handful of banks to bid for debt securities acquired by taxpayers in the U.S. bailout of American International Group Inc., and the rest of Wall Street is wondering what happened to the transparency the central bank said it was committed to upholding. “The exclusivity by which the process has shut out smaller dealers is a little un-American,” said David Castillo, head of sales and trading at broker Further Lane Securities LP in San Francisco, who said he would have liked to participate. “It seems odd that if you want to get the best possible price that it wouldn’t be open to anyone who wants to put in the most competitive bid.” After inviting more than 40 broker-dealers to take part in a series of auctions last year, the Federal Reserve Bank of New York asked onlyGoldman Sachs Group Inc. (GS), Credit Suisse Group AG (CSGN) and Barclays Plc (BARC) to bid on the full $13.2 billion of bonds offered in two sales over the past month. The central bank switched to a less open process after traders blamed the regular, more public disposals for damaging prices in 2011. This week, Goldman Sachs bought $6.2 billion of bonds in an auction.

Banks pay delinquent borrowers $35,000 to sell their homes - (money.cnn.com) In an effort to cut their losses, banks are paying some struggling homeowners as much as $35,000 to sell their homes before they end up in foreclosure. The deals are aimed at incentivizing homeowners who owe more on their home than it is worth and who are seriously delinquent on their payments to sell their homes in a short sale. In short sales, homes are sold for less than what is owed and the bank forgives the excess debt. Banks have been reluctant to approve such deals in the past -- since they take a loss on the home -- but in certain cases, it's become a much better proposition than letting the homeowner fall into foreclosure. This new approach by the banks has startled plenty of homeowners, according to Elizabeth Weintraub, a Sacramento-area real estate agent who specializes in short sales.

Greece reels after leaders agree to harsh spending cuts - (www.washingtonpost.com) Greeks clashed on the streets of Athens and in the halls of government Friday, as protesters grew violent and one after another cabinet minister resigned, a day after the nation’s leaders accepted foreign lenders’ demands for tough austerity cuts to try to stave off bankruptcy. By late evening, six cabinet members had resigned and Prime Minister Lucas Papademos went on state television to threaten members of his shaky coalition government with expulsion if they opposed making sweeping spending cuts in exchange for a bailout that would keep Greece from defaulting on its debts by mid-March. A Greek bankruptcy could shake the euro zone and potentially wreak havoc throughout the global financial system.

Student debt pushing more people toward bankruptcy - (www.latimes.com) More than four-fifths of bankruptcy attorneys have seen a notable jump in the number of potential clients with student loan debt, the National Assn. of Consumer Bankruptcy Attorneys says. Student loan debt is pushing an increasing number of young people and their parents toward bankruptcy, according to a survey released Tuesday. More than four-fifths of bankruptcy attorneys say they've seen a notable jump in the number of potential clients with student loan debt, with nearly half the lawyers reporting a significant increase in such cases, according to the report by the National Assn. of Consumer Bankruptcy Attorneys. Nearly one-quarter of attorneys say the number of potential student loan clients has risen 50% to 100%, while 39% of attorneys report increases of 25% to 50%.

Some legislators send millions to groups connected to their relatives - (www.washingtonpost.com) Some members of Congress send tax dollars to companies, colleges and community groups where their spouses, children and parents work as salaried employees, lobbyists or board members, according to an examination of federal disclosure forms and local public records by The Washington Post. A U.S. senator from South Dakota helped add millions to a Pentagon program his wife evaluated as a contract employee. A Washington congressman boosted the budget of an environmental group that his son ran as executive director. A Texas congresswoman guided millions to a university where her husband served as a vice president. Those three members are among 16 who have taken actions that aided entities connected to their immediate families. The findings stem from an examination by The Post of all 535 members of the House and Senate, comparing their financial disclosure forms with thousands of public records. The examination uncovered a broad range of connections between the public and private lives of the nation’s lawmakers.

Monday, February 27, 2012

Chafing at insults, Germany loses patience with Greece - (www.reuters.com) Germany is running out of patience with throwing money into the "bottomless pit" of Greece's debt crisis and any lingering sympathy in Berlin is being undermined by anti-German slogans on the lips of politicians and austerity protesters in Athens. While officially hailing the Greek parliament's approval of the savings package required for a new 130 billion-euro bailout, Berlin signaled this would not automatically mean more aid, as the feeling grew that Greece should not be saved at any cost. With Finance Minister Wolfgang Schaeuble warning "Greek promises aren't enough for us anymore", and Economy Minister Philipp Roesler saying "fear of Day X (a Greek euro exit)" is fading, Germany seems to have tired of issuing threats that it would never follow through.

Economists Warn of Long-Term Perils in Rescue of Europe’s Banks - (www.nytimes.com) Few would begrudge Mario Draghi his boast last week that he and the European Central Bank had prevented a disastrous credit crisis by showering banks with cheap loans in December. But beneath the gratitude toward Mr. Draghi, the president of the central bank, lurks a fear that the easy money could simply be creating the conditions for another banking crisis several years from now. Because of the central bank’s cheap financing, some economists warn, sick banks now face less pressure to confront their problems — to clean out bad loans and other impaired assets, or even wind down operations if there is no hope of a turnaround. The European Central Bank, they say, could inadvertently spawn a cohort of “zombie banks,” burdened by nonperforming loans and assets that remain on the books, like the ones that helped make the 1990s a lost decade for Japan.

China's CIC brushes aside Merkel investment plea - (www.reuters.com) The head of China's $410 billion sovereign wealth fund CIC brushed aside a call by German Chancellor Angela Merkel to buy European government debt, saying such investments were "difficult" for long-term investors. In comments ahead of a China-EU summit starting on Tuesday, Lou Jiwei, chairman of China Investment Corp (CIC), said any fresh injection of funds into Europe would be in industrial and other real assets, not government bonds. His comments struck a sharper tone than a commentary in the Communist Party mouthpiece, the People's Daily, which sought to reassure the European Union that China had no intention to "buy up Europe."

Violence offers glimpse of Greece's reform challenge - (www.reuters.com) Europe gave Greece until Wednesday to convince skeptical international creditors that it would stick to the punishing terms of a multi-billion-euro rescue package, endorsed by parliament as rioters torched downtown Athens. Lawmakers backed drastic cuts in wages, pensions and jobs on Sunday as the price of a 130 billion euro ($170 billion) bailout by the European Union and International Monetary Fund to avert a messy default that would send shockwaves through the euro zone. Scenes of running battles between police and rioters and flames engulfing cinemas, shops and banks underscored a sense of deepening turmoil in the country after more than four years of recession and two of punishing austerity.

Stunning Pictures Of The Disaster Zone In Greece – (www.businessinsider.com) Massive riots and their fallout. Protests got out of control Sunday and Monday as Greek lawmakers voted on a new round of grossly unpopular austerity measures. But even as leaders make new promises to curb government spending and get the country's economy back on track, Greece is beginning to look more and more like a war zone. According to Bloomberg, Greek police said in a statement that 45 shops were set on fire, 67 people were arrested, 75 people were detained, and 68 police officers were hospitalized during the protests.

Sunday, February 26, 2012

We May Be Looking At A Mad Dash For Banknotes In Switzerland - (www.businessinsider.com) There have been press reports in Switzerland that commercial banks are no longer able to meet client demand for safe deposit boxes. All of the boxes are apparently taken. As a result, people are renting safe deposit boxes in hotels. (Link) "...If you want a bank box in Zurich today, they will require that you have a minimum of half a million swiss francs on deposit in the bank, before they will even consider you. That is how short of space they are." From Le Temps 2/6/2012: "A distinguished lady had hidden 65,000 euros in the heels of her shoes and her bra...A Labrador is trained to sniff out banknotes in Chiasso...A motorist was caught in early February with more than 200,000 euros hidden at the bottom of his suitcase...In a survey of "the great capital flight", the daily La Repubblica suggests a rise of 50% of receivers of property along the border with Switzerland in late 2011 over the summer.

Ditching your bank - (www.sacbee.com) Exactly three months ago, many bank customers were fuming. They didn't like bigbank bailouts, and they didn't like the $5 debit card fees that Bank of America and other institutions were rolling out. Across the country, consumer activists and Occupy Wall Street groups alike urged customers to dump their old bank and switch to a new one, presumably with fewer fees. Through blogs, billboards and bullhorns, last Nov. 5 was officially designated as "Bank Transfer Day." So what was the result? According to a study released last week, about 610,000 U.S. consumers jilted their existing bank and hooked up with a new one between October and December, specifically citing "Bank Transfer Day" as their reason.

Cost for Doing God's Work Declines from $13.2 Million to $9 Million - (globaleconomicanalysis.blogspot.com) Inquiring minds note a stunning drop in the price for doing God's Work. Last year Goldman Sachs CEO Lloyd Blankfein received a salary of a $600,000 as well as a stock bonus worth $12.6 million. This year the base salary for doing God's work rose to $2 million, however, bonuses fell to a shockingly-low $7 million. The net effect is a decline from $13.2 million to $9 million. That is a 30% reduction in the overall cost of doing God's work. Said Blankfein "Now I know how those in Greece feel".For additional details, please see Goldman’s Blankfein Awarded $7 Million in Stock for ’11. Here is one key fact from the article. The filings don’t include how much any of the executives have been awarded in cash bonuses. Blankfein received a $5.4 million cash bonus for 2010, his first since getting about $27 million in cash bonuses for each of 2007 and 2006. Mercy! How can the man survive a cut like that?

New York sues banks over foreclosures - (www.cnn.com) The New York attorney general sued some of the nation's biggest banks on Friday, accusing them of unlawful and deceptive practices for relying on a private electronic registry that tracks mortgages. Attorney General Eric Schneiderman on Friday sued Bank of America, Wells Fargo, JPMorgan Chase, as well as the Mortgage Electronic Registration System Inc. (MERS) in New York state court. Schneiderman says that the banks created the electronic registry as an "end-run" around the public property recording system to help them more quickly buy and sell parts of mortgages. He said the system helped banks create "deceptive and fraudulent court submissions" and improperly foreclose on homeowners. "Our action demonstrates that there is one set of rules for all -- no matter how big or powerful the institution may be -- and that those rules will be enforced vigorously," said Attorney General Schneiderman in a statement.

History says real estate is a bad investment - (www.cbsnews.com) While the housing bust showed many people the dangers of investing in residential real estate, investors could have realized this long before, simply by paying attention to history. Prior to the bust, recent history made many investors feel comfortable that buying up houses would prove profitable. The recent Journal of Wealth Management paper "Measuring Residential Real Estate Risk and Return" noted that while there were a few individual quarters when the S&P Case-Shiller home price index fell, the overall trend for the 19-year period 1987-2005 was upward. The run-up in home prices was so great that for the 10-year period 1997-2006, the nominal and real returns were 9.7 percent and 7.1 percent, respectively. And from 2000 through 2006, the figures were 11 percent 8.2 percent, respectively.

In 1995, the House and Senate passed the Congressional Accountability Act, which did apply many civil rights, labor and workplace safety statutes to the legislative branch. Congress is still exempt from:

—The Freedom of Information Act.

—Investigatory subpoenas to obtain information for safety and health probes.

—Protections against retaliation for whistleblowers.

—Having to post notices of worker rights in offices.

—Prosecution for retaliating against employees who report safety and health hazards.

—Having to train employees about workplace rights and legal remedies.

—Record-keeping requirements for workplace injuries and illnesses.

Welfare Drug Testing Bill Withdrawn After Amended To Include Testing Lawmakers - (www.huffingtonpost.com) A Republican member of the Indiana General Assembly withdrew his bill to create a pilot program for drug testing welfare applicants Friday after one of his Democratic colleagues amended the measure to require drug testing for lawmakers. "There was an amendment offered today that required drug testing for legislators as well and it passed, which led me to have to then withdraw the bill," said Rep. Jud McMillin (R-Brookville), sponsor of the original welfare drug testing bill. The Supreme Court ruled drug testing for political candidates unconstitutional in 1997, striking down a Georgia law. McMillin said he withdrew his bill so he could reintroduce it on Monday with a lawmaker drug testing provision that would pass constitutional muster.

American health care is already socialized - (www.slate.com) At the end of 2011, the remarkable innovator Donald Berwick was forced to resign as the recess-appointed head of Medicare and Medicaid, a casualty of Republican-led opposition to his confirmation. An outspoken fan of the United Kingdom’s single-payer system, Berwick was portrayed by critics as a socialist who once commented that “excellent health care is by definition redistributional.” In 2010, for example, Republican leaders of the Senate Finance Committee grilled him about whether he “still distrusted the free market” and made it his goal to “make health care rationing the new normal.” The furor over Berwick reflects a broader, fundamental disagreement over the nature of health insurance. Should it be “social” insurance, with which financial risk is leveled between those who are ill and healthy, so the carefree twenty-something and diabetic elderly man pay equally into the system?

Obamacare protecting small businesses from large premium hikes - (www.latimes.com) The Obama administration Monday called on a health insurance company in Pennsylvania to reduce what it is charging small businesses, using a tool in the new healthcare law for the first time to pressure insurers to restrain rising premiums. Officials at the Department of Health and Human Services determined that Everence Insurance Co.'s plan to raise rates on about 5,000 people in Pennsylvania by nearly 12% next year is unreasonable. That rate is not justified by what the insurer was expected to pay out in medical claims in the state, said Secretary of Health and Human Services Kathleen Sebelius. "We're calling on the insurance company to immediately withdraw this rate and provide refunds or credits to any beneficiaries who have already paid the unreasonable amount," Sebelius said, promising that the Everence review would be "the first of many" to come.

On Foreclosures, Uncle Sam Courts Investors - (www.wsj.com) On Wednesday, a U.S. housing regulator invited investors to submit initial applicationsto bid on pools of foreclosed properties owned by Fannie Mae, the government-controlled mortgage finance company, as part of a new pilot program. The goal is to help stabilize the troubled housing market by turning properties into rental units. Similar programs are expected to be launched by Fannie Mae’s sibling company, Freddie Mac, and the Federal Housing Administration, the government-controlled mortgage insurer.

Wednesday, February 22, 2012

Faulty Loans Top $72 Billion as Banks Seek Deal With Regulators - (www.bloomberg.com) Costs from faulty mortgages and shoddy foreclosures have topped $72 billion at the biggest U.S. banks as they near a settlement of a 50-state probe into the industry’s practices. Wells Fargo & Co.,Bank of America Corp., Citigroup (C) Inc., JPMorgan Chase & Co. and Ally Financial Inc., the five largest home lenders during the real estate boom, tallied at least $6.78 billion in new costs tied to mortgages during the second half of 2011, according to data compiled by Bloomberg. Bank of America, ranked second among U.S. banks by assets, contributes $41.8 billion of the overall total. The mounting costs are pushing lenders and regulators to resolve investigations and lawsuits over faulty home lending, including a 50-state review of foreclosures. The wrangling over the status of old loans has made some banks more reluctant to make new ones, even as Federal Reserve Chairman Ben S. Bernanke appeals for action to increase lending and fix the U.S. housing market because it’s a drag on the economic recovery.

States With Highest Foreclosure Rates Among Accord Holdouts - (www.bloomberg.com) California, New York, Nevada, Florida and Massachusetts are among the states that haven’t signed off on a settlement with banks over foreclosure abuses, according to state officials and two people familiar with the talks. The holdouts include some with the highest rates of foreclosures. More than 6 percent of Nevada housing units had at least one foreclosure filing in 2011, the nation’s highest rate, according to RealtyTrac. California was third-highest with more than 3 percent, said the firm, which tracks foreclosures. California Attorney General Kamala Harris and New York Attorney General Eric Schneiderman, who have been among the most outspoken in pushing for changes to the accord, were among those who hadn’t joined as of a Feb. 6 deadline. More than 40 states signed on, said Iowa Attorney General Tom Miller, who is helping to lead talks with the banks.

This Teamsters Memo Shows How The Threat Of A Union Strike Could Seal Hostess' Fate - (www.businessinsider.com) The growing bankruptcy battle between Hostess management and its 19,000 employees could come to a head next month when a bankruptcy judge rules on the company's request to scrap its current employee contracts. Leadership at the International Brotherhood of Teamsters, which represents the majority of Hostess employees, have asked their membership to authorize a potential strike if the judge grants the company's request, according to a memo sent to us by a current employee. Hostess management have said that replacing the current employee contracts with new cheaper ones is the only way that the battered company will be able to come out of bankruptcy. But union officials are calling Hostess's demands — which include a five-year wage freeze and scrapping employer contributions to health and pension plans — unreasonable, according to the memo. This latest development does not bode well for the future of this once-iconic company, best known for Twinkies and Wonder Bread. Management claims they need these concessions to cut labor costs, but if the court approves the new contracts and employees go on strike, replacing employees would create a whole new set of costs in order to continue operations. Union officials acknowledge this tension in the memo, writing that a strike "would almost certainly put Hostess Brands out of business and cost thousands of jobs."

Tuesday, February 21, 2012

Ship Charter Rates Go Negative - (www.bloomberg.com) Glencore International Plc paid nothing to hire a dry-bulk ship with the vessel’s operator paying $2,000 a day of the trader’s fuel costs after freight rates plunged to all-time lows. Glencore chartered the vessel, operated by Global Maritime Investments Ltd., a Cyprus-based company with offices in London, Steve Rodley, GMI’s U.K. managing director, said by phone today. The daily payments last the first 60 days of the charter, Rodley said. The vessel will haul a cargo of grains to Europe, putting the carrier in a better position for its next shipment, he said. “Our other option was to stay in the Pacific and earn poor revenues or ballast to the Atlantic and pay the fuel ourselves,” Rodley said. Ballasting refers to sailing without a cargo. Charles Watenphul, a spokesman for Glencore, declined to comment in an e-mailed response to questions.

Europe’s Banks Reluctant to Lend to Companies in Need of Cash - (www.nytimes.com) European governments are not the only ones struggling with debt. So are some of the region’s companies. As profits and sales slip, some European businesses are scrambling to pay their bills. Because banks are reluctant to lend, the fear is that companies will not be able to borrow the cash they need and will be forced to take drastic action, further weighing on the economy. “There’s a lack of business confidence across Europe” said Jonathan Loynes, chief European economist in London at the research organization Capital Economics. “Lending to the private sector is deteriorating, and there’s enormous stress on the European economy.”

A Wipeout That Didn't Have to Happen - (www.nytimes.com) BOBBY L. HAYES, an engineering entrepreneur in Incline Village, Nev., used to trust financial institutions. This is the story of why he no longer does. Mr. Hayes won a securities arbitration last week and was awarded $1.38 million from the panel that heard the case. Banc of America Securities, now Merrill Lynch, must pay the award, which represents all the money Mr. Hayes lost on a complex security, plus accrued interest, lawyers’ costs and hearing fees. The Hayes case highlights this question: Exactly how did Wall Street price the loans that it bundled into securities and sold to investors?

Greece falters in debt talks with creditors - (www.telegraph.co.uk) Lucas Papademos held emergency telephone talks with Christine Lagarde and Mario Draghi today in a bid to find a way to meet the demands of both Greece’s private creditor banks and its “troika” paymasters. Evangelos Venizelos, the Greek finance minister, told reporters he hoped to announce a deal this evening to avoid rattling global stockmarkets. However, he added: “It’s not an impasse but there are problems for the Greek side.” There are just six weeks left before Greece faces a €14.5bn (£12bn) bond repayment which it cannot meet without international aid. European leaders have said Greece will not receive funds from the €130bn rescue package unless it can persuade its private creditors to take losses to reduce the country’s debt pile.

Wow. But Is the Number Real? - (www.nytimes.com) How many jobs did the American economy add in January? The Labor Department estimated on Friday that the economy gained 243,000 jobs. The department also estimated that the economy lost 2,689,000 jobs in the month. The difference in the two numbers is in seasonal adjustment. Employment always falls in January, as temporary Christmas jobs end. So the government applies seasonal adjustment factors in an effort to discern the real trend of the economy apart from seasonal fluctuations. The actual survey showed the big loss in jobs. The seasonal adjustments produced the reported gain of 243,000 jobs. A reason to doubt the number is that there has been a tendency in this cycle for the seasonal factors to overstate moves, in both directions. Labor mobility is down, as fewer workers quit to seek better jobs and employers both hire and fire fewer people than they used to do. If the seasonal adjustment was too large, then the gain should be smaller